If you’ve bought a car before, you’ve experienced the “F&I office.” Shrouded in secrecy, the F&I office, which stands for Finance and Insurance, is one of the greatest profit making centers within a car dealership. F&I Managers can be some of the highest paid employees at a car dealership because they generate so much profit for the business.
That being said, many car buyers are confused when they enter the F&I office. The paperwork, the many products, a good F&I Manager’s sales tactics … They all make it challenging to get in and out of the dealership without having purchased something while in the F&I office.
One way you can feel more confident and comfortable in the F&I office is by understanding the jargon, slang, and lingo used by F&I Managers. That’s why we prepared this guide, our Dealership F&I Office Glossary of Terms.
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Without further ado, let’s dive in!
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Buy rate (APR)
The buy rate is the interest rate that a financial institution quotes to a dealer when you apply for financing through the dealership. Your dealer may offer you an interest rate that is higher than the buy rate, which is referred to as the sell rate. Ask the F&I Manager, “Are you quoting me the buy rate?” When negotiating your financing options through a dealership.
Sell rate (APR)
The sell rate is the interest rate that the dealership quotes you for your dealer-arranged financing. When you submit a credit application through a car dealership, the dealer has the discretion to charge you more than the buy rate. Always ask the F&I Manager if your interest rate is the “buy rate” or the “sell rate”.
The approval is a document from a financial institution that shows you have been approved for a loan with specified terms and conditions. When you submit a credit application through a dealer, they are not required to show you your approvals from the various financial institutions they contacted on your behalf. You should feel comfortable to ask to see your “approval” so that you can confirm they are not marking up your loan.
Equifax, Experian and TransUnion are the 3 credit reporting bureaus. Each company gathers data about your credit use to determine your creditworthiness and credit score.
A prepayment penalty is a fee charged on an auto loan for paying off the entire balance of the loan before the loan term is complete. Most auto loans do not include prepayment penalties, however some can. Prepayment penalty protections vary from state to state, so be sure to understand if your financing option has a prepayment penalty or not before signing the dotted line.
VSI stands for Vendor’s Single Interest, and this fee may show up on your final bank contract when purchasing a vehicle. Typically no more than $100, the VSI fee is a cost passed on to you by the lender that protects the bank in the event that the vehicle they are providing financing for is damaged or destroyed.
The base payment is the monthly payment you will be making on your vehicle without any additional add-ons or ancillary products. Ask your F&I Manager what your base payment is when finalizing your car deal.
The credit application is a form that is typically completed online that car dealerships use to secure loan options on your behalf.
A subvented rate is an interest rate that is lower than you could receive elsewhere because it is subsidized by the manufacturer in an effort to sell more cars. Zero percent financing offers are an example of subvented rate programs from auto manufacturers.
On approved credit
When you are negotiating a deal with a dealer, the salesperson may quote you monthly payments. You may see the salesperson or sales manager write “on approved credit” next to it. It simply means that this payment is only applicable subject to credit approval.
Money factor on a lease
The money factor is the basis for the interest portion of your lease. Money factors can be converted to interest rates by multiplying the money factor decimal by 2400.
Due at signing on a lease
The amount you will have to pay out of pocket upon initiating a lease. Many car buyers look for “zero down” leases, however a typical lease will include the first lease payment due at signing.
The residual value is the percentage of the vehicle’s original MSRP that the leasing company expects the vehicle to be worth at the end of the lease term. The residual value is not negotiable and is set for each vehicle at each term (i.e. 36,000 miles and 36 months will have different residual value than 24,000 miles and 24 months). Many leasing companies rely on Black Book and ALG to determine their residual values.
The disposition fee is a fee charged by the lease company to offset expenses associated with the lease return process. The lease disposition fee is typically waived if you lease another vehicle from the same leasing company.
The acquisition fee is a fee charged by the leasing company at the inception of the lease. This fee is not negotiable and it is set by the leasing company. The acquisition fee typically covers the leasing company’s expense to purchase GAP Insurance on the vehicle.
Extended warranties are sold by manufacturers or car dealers, and they provide elongated warranty coverage on a vehicle. Extended warranties can only be sold by the manufacturer or the dealership selling a vehicle. Most extended warranties last for a short period of time, while longer coverages come in the form of vehicle service contracts. Read the full extended warranty guide here.
Vehicle service contracts
Vehicle service contracts are commonly referred to as extended warranties, however they are different. Vehicle service contracts are a contractual agreement between two parties (the contract provider and the customer), where the contract provider agrees to pay for any future repairs as stipulated in the contract. Many consumers purchase vehicle service contracts when thinking they are purchasing an extended warranty. Read the complete vehicle service contract guide here.
GAP Insurance (Guaranteed Asset Protection)
GAP insurance is a policy that protects car buyers in the event their vehicle is totaled and they owe more money on the loan than the vehicle is worth. For example, let’s say you bought a brand-new Honda Civic for $20,000. You financed it and bought GAP insurance. The second you drive off the lot, you’re in a major accident that totals your car. Your insurance company pays you $15,000 for the totaled vehicle, but what about the remaining $5,000 that you owe? That’s where GAP insurance comes in. GAP insurance will cover the $5,000, plus it should (depending on your policy) cover any deductibles involved. It is advisable to purchase GAP insurance from your auto insurer or bank, but typically not from a dealership since they mark it up significantly. Read the complete GAP Insurance guide here.
Dent and ding coverage
Dent and ding coverage is a common insurance product sold to car buyers that provides protection from dents and dings. If you live in a city and you are afraid your vehicle may get a few small dents, dent and ding coverage would cover the cost of repairs instead of you paying out of pocket.
Tire and wheel coverage
Tire and wheel coverage is another common insurance product that pays for repairs and replacements to your tires and wheels. Be sure to ask if the coverage also covers cosmetic issues with the rims.
Exterior and interior protection
Exterior and interior protection products are add-ons that car dealers apply to their inventory without you asking. These protection products are already installed, but that doesn’t mean you can’t negotiate them.
If you pass away while you have your loan, this insurance will pay off the loan so that your estate does not have to. Although infrequently sold nowadays, you may come across this in an F&I office.
Accident and health insurance
Accident and health insurance provides coverage if you become disabled and cannot make your car payment. This is another product that is infrequently sold but you may come across it at a car dealership.
Excess wear and tear coverage (lease only)
Excess wear and tear coverage is only applicable for a lease and covers cosmetic issues at the time of lease return.
Lojack or similar tracking device
Lojack, and other anti-theft devices are frequently added to vehicles sold at a car dealership. Remember that these anti-theft products are taxable, which means they are negotiable!
The period of time from the date of purchase of an insurance product where you will receive a full refund. After the flat cancel date you will receive a prorated refund. You can ask your F&I Manager, “What is the flat cancel on the tire and wheel protection?”
Menu-selling is a sales methodology used by F&I Managers to present different products that can be sold in conjunction with the purchase of your vehicle. Menu-selling is prolific in the F&I office.
A two term menu is a menu that shows you how ancillary products would impact your payments for two different loan terms.
What is cancelable
Nearly every product sold in the F&I office is cancelable. What does this mean? It means that if you feel you made a mistake by purchasing a vehicle service contract, you can cancel it and receive a refund. Read your contracts carefully, but don’t let a F&I Manager tell you otherwise … Insurance products are nearly all cancelable.
Motor vehicle power of attorney
The motor vehicle power of attorney form allows the dealership to transfer ownership of the vehicle from the seller (dealer) to the buyer (you).
Application for title and registration
This is paperwork from the state that has all of your vehicle and owner information so that the state can provide you with your title, registration, and license plates
This is a form that lists the vehicle by VIN and the exact miles that are on the vehicle when it is either traded-in or purchased.
A form that dealership staff will complete and associate with your deal for anything the dealership owes the customer. For example, floor mats that the dealership owes you as part of the car deal.
A similar form to the “we-owe” that lists anything the customer owes to the dealership. For example, the second key for a trade-in.
Errors and omissions statement
A form the customer signs stating that they agree to come back and redo paperwork if there are any errors or omissions at the time of completion.
A form you will sign in the F&I office stating that you were made aware of all the products for sale in the F&I office.
Payment grace period
How many days the bank gives you from the due date where they won’t charge you a late fee.
Trade payoff date
When you are trading in a vehicle and you have an existing loan, you will need to request a payoff amount from the financial institution. The payoff amount has a “good until” date, this date represents the date by which the payoff must be made.
Days to first payment
When you originate a new loan you can choose to have your first payment made anywhere from 30 to 45 days from the date of origination.
Signer and co-signer
The signer is the main obligor on a loan. The co-signer is the secondary obligor. If the signer does not make their payments the co-signer is on the hook for the loan.
A personal guarantor is the person who guarantees a loan, oftentimes this is required for a business purchase.
Soft credit inquiries do not affect your credit score and are typically used to prequalify for an auto loan.
Hard credit inquiries typically require your authorization and do impact your credit score. Financial institutions run a “hard pull” to make a final decision on your loan application.
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